Outstanding P2P Lender System to Boost Mid- to Low-Credit Loans... Own Capital Limit Raised to 40%, Linked Investment to 50%

Introduction of Outstanding P2P Lender System Planned for First Quarter Next Year

General Investor Limit Raised from 40 Million to 50 Million Won

Small-Scale Diversified Investment Permitted, Borrower Maturity Extension Process Improved

Financial authorities will introduce a new system in the first quarter of next year, naming "Outstanding Online Investment-Linked Financial Companies for Lending to Medium- and Low-Credit Borrowers" in order to increase funding for such borrowers. Those selected as outstanding companies will see an increase in the self-investment limit for medium- and low-credit loans from the current 20% to 40%. The cap on investment linked to financial institutions will also be raised from 40% to 50%.

The Financial Services Commission announced this plan on September 22 during an online investment-linked finance industry roundtable chaired by Vice Chairman Kwon Dae-young, discussing measures to promote funding for medium- and low-credit borrowers.

As of August this year, the cumulative loan amount in the online investment-linked finance (P2P finance) industry surpassed 20 trillion won, but about 70% remains concentrated in real estate collateral and stock-backed loans, meaning the focus on secured lending continues. Over the past five years, unsecured credit loans accounted for only 11.6% on average. As of the end of last year, the proportion of medium- and low-credit borrowers in unsecured personal loans stood at 63.1%, lower than savings banks (99.7%), insurance companies (95.3%), and specialized credit finance companies (99.6%).

In response, the Financial Services Commission decided to incentivize outstanding online investment-linked financial companies to expand lending to medium- and low-credit borrowers. To qualify, companies must have had a record of unsecured credit loans to individuals or sole proprietors in the past three years, and at least one business year in which either the share of loans to medium- and low-credit borrowers was 60% or greater or the outstanding balance exceeded 30 billion won. Additional conditions include possessing an in-house alternative credit assessment model and staff, keeping personal credit loan rates below 15%, maintaining at least 1 billion won in capital, and an overdue ratio for personal credit loans below 5%.

Selected companies will benefit from eased investment regulations. They will be able to invest up to 40% of the raised amount in self-funding for unsecured credit loans to individuals or sole proprietors with medium or low credit. The cap on "linked investment"—where a financial institution funds loan products evaluated by an online investment-linked finance company—will rise from 40% to 50% of the raised amount. As a result, it will become possible for two financial companies to each invest up to 50%, enabling joint lending execution.

Small-scale diversified investment will also be permitted for unsecured credit loans to individuals and sole proprietors. Investors may invest up to 10 million won per P2P company and up to 100,000 won per loan product. The allocation for medium- and low-credit loans must account for at least 70% of a portfolio. The investment limit for general investors in the online investment-linked finance sector will also increase from 40 million won to 50 million won.

In addition to savings banks, participation in linked investment will be expanded to cooperative finance institutions, and eligible investment products will be broadened from individual credit loans to include credit loans to sole proprietors.

The procedure for borrowers to extend loan maturity will also be improved. Currently, borrowers must repay their entire existing loans and secure new investors, but going forward, maturity extensions will be allowed within the pre-existing investment amount. Additionally, a specialized credit assessment model (SCB) that utilizes sales, business category, and commercial area information for small business owners will be integrated so that online investment-linked financial companies can use it.

To enhance investor protection, online investment-linked financial firms will be subject to external audits of key management information, and in addition to overdue ratio, loss rate disclosures will become mandatory. Grounds for the regulatory cancellation of registration of underperforming companies will be established, and user protection measures—such as prior notice of closure and the operation of a complaints channel—will be made obligatory in the event of business closure.

The Financial Services Commission plans to conduct reviews of innovative financial services to implement the system for outstanding companies and expand investment linkage with financial institutions in the first quarter of next year. Legislation needed to strengthen closure procedures and user protections will also be prepared within the same period.

Vice Chairman Kwon stated, "We will support the online investment-linked finance industry so it can serve as an important pillar for productive and inclusive finance in the financial ecosystem. We ask players in the industry to strengthen their own capabilities and take on the responsibility of being innovative financial businesses, providing a foundation for recovery and growth opportunities to medium- and low-credit borrowers and the self-employed."

This content was produced with the assistance of AI translation services.